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While the gold price long has been at least
"managed" by Western central banks -- as with the gold standard
itself, and then the London Gold Pool of the 1960s -- the current
arrangement, largely surreptitious, may have originated with an academic
paper co-written in 1988 by Lawrence Summers, then a professor at Harvard,
later deputy to Treasury Secretary Robert Rubin and then his successor. The
paper was titled "Gibson's Paradox and the Gold Standard" and was
published in the Journal of Political Economy. You can find it here:
http://www.gata.org/files/gibson.pdf
It's very dense but GATA consultant Reginald H.
Howe, a lawyer and gold mining company investor in Massachusetts, the first litigator
against the gold price suppression scheme and a Harvard grad himself, put it
in context in 2001 with his essay "Gibson's Paradox Revisited: Professor
Summers Analyzes Gold Prices," which you can find in the
"Essays" section on the home page at Howe's Internet site here:
http://www.goldensextant.com/
Essentially, the scheme as implied by Summers' paper
is to keep interest rates down and government bond prices up by rigging the
gold market, gold and interest rates ordinarily being inversely correlated.
I've long had a hunch that the scheme became U.S.
government policy because of President Clinton's resentment upon being told,
soon after taking office, that the foremost objective
of his administration should be to placate the bond market. There is a famous
quotation about this in Bob Woodward's book about the Clinton administration's early days,
"The Agenda." The full book isn't available on the Internet but the
quotation appears in several reviews of the book that have been
posted. Clinton
says:
"We're Eisenhower Republicans here. We stand
for lower deficits, free trade, and the bond market. Isn't that great? ... We
help the bond market and we hurt the people who voted us in."
Here's a link to one such review:
http://www.counterpunch.org/pollin10182003.html
My hunch is that not long after Clinton
expressed this resentment of the bond market, Rubin told Clinton
how the bond market could be deceived by rigging the gold market, and Clinton gave his
approval.
While this scenario is admittedly speculation, the
gold-carry trade, on which the gold price suppression scheme was based -- the
lending of Western central bank gold reserves to investment houses at an only
nominal interest rate, the investment houses' sale of those reserves, and
their use of the proceeds to purchase government bonds for a risk-free income
of 5 percent or so -- is a matter of public record. Even if it wasn't the intent,
this had the effect of suppressing the gold price, supporting
government bond prices, and lowering interest rates.
Further, a gold mining company executive, a longtime
GATA supporter, who worked with Rubin at Goldman Sachs prior to Rubin's
appointment as treasury secretary, witnessed Rubin's involvement in the gold
carry trade at Goldman.
While the people who formed GATA sensed as early as
1998 that something was wrong technically in the gold market, it took us a
couple of years to figure out that the culprits were not the visible players
in the futures markets -- the New York investment banking houses -- but
rather the Western central banks, and that the investment houses were just
their agents, their cover. A British economist, Peter Warburton, may have
been the first to put it together comprehensively, with his 2001 essay,
"The Debasement of World Currency: It Is Inflation, But Not as We Know
It," which you can find here:
http://www.gold-eagle.com/gold_digest_01/warburton041801.html
Warburton argued that the Western central banks meant
to deprive the world of any standard by which their enormously inflationary
policies could be quantified.
While the gold price suppression scheme is seldom
raised in polite company and even less often acknowledged in the mainstream
financial press, enough public documentation of it has been discovered to
allow me to make a stump speech out of it. Here is the stump speech's most
recent version, as presented at GATA's conference
in Washington
in April:
http://www.gata.org/node/6242
The speech contains Internet links to most of the
documentation it cites.
An indication that maybe GATA is not just another
conspiracy group came out of the blue in June 2004, when Oleg Mozhaiskov, the deputy chairman of the Bank of Russia,
that country's central bank, gave a speech to the London Bullion Market
Association's Bullion Market Forum in Moscow.
Up to that point GATA had not knowingly had contact with anyone in Russia, and
yet the only words in Mozhaiskov's speech that were
in English were "Gold Anti-Trust Action Committee."
We heard something about the Mozhaiskov
speech soon afterward but the LBMA refused to provide us a copy of its
English translation. So I got in touch with Mozhaiskov
by fax in Moscow and he agreed to provide a
translation through an intermediary, Moscow Narodny
Bank in London.
(I told Mozhaiskov that I'd be glad just to get the
Russian text, since at that time my newspaper employed a reporter who was
fluent in Russia
and had studied at length there, but Mozhaiskov was
insistent on controlling the translation.) It took a couple of months but Mozhaiskov came through.
His remarks about GATA were less than a complete
endorsement of our work but his meaning seemed plain enough: that the gold
market was not free-trading and that it was subject to surreptitious
influences.
Of course there was no need for Mozhaiskov
to mention GATA if he didn't want to call attention to our work. And of
course he thereby signified that the Russian central bank had been watching
GATA for a long time, quite without our knowledge. You can find Mozhaiskov's speech here:
http://www.gata.org/node/4235
A year later, in August 2005, Andrey
Bykov, an economics adviser to the Russian
president, Vladimir Putin, attended GATA's
international conference in Dawson
City, Yukon Territory,
at which the gold carry trade was a primary subject. We can't prove it but we
suspect that it was at this point that the Russians understood that most of
their central bank's gold had been deposited in London
and leased out as part of the gold price suppression scheme, which served to
suppress commodity prices generally and cheat commodity countries like Russia:
http://groups.yahoo.com/group/gata/message/3502
In any case immediately after GATA's
conference in Dawson
City, President Putin
announced that the Bank of Russia would be adding to its gold reserves and
buying gold on all markets, and gold's ascent quickened dramatically. We
doubt that this was a coincidence.
Frank Veneroso, whose
credentials in international finance are as good as anyone's, gave his
analysis of the gold carry trade at a conference in Lima, Peru,
in 2002. You can find Veneroso's presentation here:
http://www.gata.org/node/4249
And Antal Fekete, an
economist dedicated to the gold standard, wrote a year ago what struck me as
an excellent essay on the underlying purpose of derivatives, which are
heavily involved in the gold price suppression scheme as well as the interest
rate suppression scheme: to siphon away from real goods the vast increase in
the world money supply. To a great extent Fekete's
thoughts seem to echo Warburton's:
http://www.24hgold.com/viewarticle.aspx?langu...rticleid=168631
I would summarize all this with the title of my
stump speech: "There are no markets anymore, just interventions."
Because government interventions in markets are now so pervasive, I don't
think we have much of an idea of how anything would be fairly priced.
The only thing I think we know is that Western central bank gold reserves,
the crucial mechanism for market rigging, will be exhausted, likely within
our lifetimes, at which point we may begin to discover market prices again --
as if commodity prices recently haven't been shocking enough.
Chris Powell
Secretary /
Treasurer
Gold Anti-Trust
Action Committee
www target="_blank".GATA.org
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